Insurers force small firms to close

Hundreds of British companies have been forced out of business after insurers have refused to offer insurance cover for accidents at work or increased premiums by up to 1,000 per cent.

The crisis facing thousands of small and medium-sized businesses is revealed in an article in Insurance Times, the business newspaper, which shows that more than 200 companies have already been forced to close.

Under the Employer's Liability Act 1969 businesses must have insurance to cover staff for accidents at work through to more serious conditions such as asbestos-related diseases.

But a number of insurers and Lloyd's of London syndicates have scaled back or quit the market in recent months as payouts and claims have grown sharply. Employer's liability business has become increasingly unattractive since severe industrial diseases such as asbestos-related illnesses can entail years of payments to treat a victim.

A surge in insurance premiums in other sectors such as property and aviation and a general hardening of rates since the September 11 terrorist attacks has made employer's liability even less attractive.

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In some cases insurers have effectively blacklisted certain sectors such as construction, where scaffolding, demolition and roofing companies are particularly hard to insure. The collapse last year of Independent Insurance, the listed company which was one of the biggest providers of employers liability cover, has made capacity in the market even tighter.

Broker Network, a company which helps insurance intermediaries place business, claims that its 120 movers have seen more than 200 cases where companies have been forced to shut after failing to get cover. Where companies can get cover the premiums have surged.

Some small companies are facing a 1,000 per cent increase, according to Broker Network, while medium-sized companies can face 400 per cent increases.

According to Insurance Times, Scotia Handling Services and Scotia Rigging Services, two family-owned firms which specialise in lifting tackle and stainless steel rigging, paid a premium of about £2000 last year, but have been told this will rise to £35,000 this year.

At a meeting earlier this month with the Treasury, the Association of British Insurers, the industry trade body, warned that the current framework of employer's liability insurance was unsustainable. The ABI is demanding that the Government pass legislation to allow industrial diseases such as asbestos to be excluded from standard employer's liability policies.

Insurers claim the law is out of date since it was framed before industrial diseases such as asbestos-related illnesses were understood.

The employer's liability crisis comes as the National Association for Independent Resources for Children, a body representing 200 private care homes, warned that hundreds of children's care homes could go out of business as insurers withdraw liability cover.